Does budget fuel anti-export bias?

One thing that sticks out like a sore thumb on the PML-N economic scorecard is falling export competitiveness. Although exports saw some degree of revival this year, they experienced a negative growth of 19 percent from 2014 to 2017.Depending on which stakeholder one speaks to, a variety of factors are cited for the fall.

Now, the Commerce Ministry is also making its voice heard. Its latest National Tariff Policy (NTP) daft has identified the increase of multiple layers of tariffs and taxes as one of the major causes of the decline in exports. Though imports grew by only 17 percent over 2010 to 2016, tariff revenues increase by 169 percent. Similarly, regulatory duties (RDs) increased from 105 tariff lines in 2013 to over 1,500 tariff lines in 2017.

While increase in tariffs and duties have, in some part, come as a response to increase in imports, they have also been used incorrectly as a tool for revenue generation. This is indicated by the share of collection of RDs in the import revenues rising from 1.5 percent of total customs revenue collection in 2013 to over 8 percent in 2017.

The recently revealed budget had some measures to alleviate these concerns. Custom duties on raw materials and input of 104 tariff lines are expected to be withdrawn and on 28 tariff lines to be reduced. This is part of tariff restructuring for mostly industrial raw materials, the details of which, the finance minister said in his budget speech, will later be “presented in Part-II of Finance Bill”.
However, from what little that can be gleaned from the budget, it appears that the policy recommendations of the draft NTP are at odds with the budget, on at least a couple of points.

For one, the NTP recommends duty on over 450 tariff lines to be reduced in FY19; the budget’s target is more modest at 104 tariff lines. Moreover, the NTP recommends that the additional duty of 1 percent be merged into respective tariff lines to simplify the tariff structure. This duty has been increased to 2 percent under the budget.

Be that as it may, it is unlikely that the tariff restructuring and other assorted measures to boost exports will allow exports to come even at a ballpark distance of $150 billion, which was one of the targets of Vision 2025 prepared by PML-N. Now, it is onto the next government to resolve the riddle of falling export competitiveness and the role import tariffs have in it.